Spot cargoes for the heavy-viscosity grades of both API Group I and Group II base oils are difficult to come by, and suppliers that have availability are hiking offers every week, sources said.

The snug base oil supply situation stems from an uptick in demand during the spring season, lean inventories on the producers side throughout the winter and ongoing and upcoming turnarounds.

Several base oil plants in Asia had been running at reduced operating rates or were temporarily taken off line in the past few months due to weak market economics, and a couple of producers are getting ready to start maintenance shutdowns.

Taiwanese producer Formosa Petrochemical is one of them, with a two-month turnaround at its 600,000 metric ton per year Group II facility in Mailiao scheduled to start in mid-June. The supplier is anticipated to ship only half of its regular contractual volumes to China next month.

In China, Sinopec is expected to take its Nanyang unit in Henan province off line for the month of August. The plant can produce 47,000 t/y of Group I base stock and will remain off line fora maintenance turnaround at the refinery that supplies its feedstock.

Sources continued to hear talk about unplanned production issues at the Thai Lube 282,000 t/y Group I base oils plant in Sriracha, Thailand. Reportedly, several Southeast Asian base oil consumers resorted to securing imports from countries such as Japan because of a regional shortage of spot supply.

Given the current tight supply/demand conditions and climbing crude oil values, it was not surprising to see offers for several grades of base oils edge up, with the heavier grades reflecting the steeper hikes and the spread between light and heavy grades widening further. The heavy grades typically see higher demand during the warm months than lighter grades.

There were reports that a Southeast Asia-based refiner would be increasing its ex-tank Singapore list prices for June. The refiner’s price movements are often perceived as a bellwether of trends for the month.

According to sources, the producer would be lifting the price of its Group I solvent neutral 150 and bright stock, and its Group II 150 neutral by U.S. $30/t. The refiner’s Group I SN600 and its Group II 500N would be marked up by $50/t, with all the adjustments going into effect on June 8.

Climbing base oil price ideas in other regions, such as in the United States, also contributed to the upward movement of pricing in Asia, as buyers have been sourcing product in recent months.

U.S. producer Chevron raised posted prices for its Group II 100, 220 and 600-vis base oils by 20 cents per gallon as of May 25. The producer most recently increased prices on April 27, a move that was followed by a vast majority of U.S. suppliers.

With June discussions heating up in Asia, a number of base oil cuts underwent upward revisions while others remained stable.

Ex-tank Singapore indications edged up on the back of a key refiner’s increase initiative. The Group I SN150 grade was heard at $530/t-$550/t ex-tank Singapore, up $10/t from the previous week. The SN500 moved up $30/t to $640/t-$660/t. Bright stock also edged up by $10/t to $1,030/t-$1,050/t ex-tank Singapore.

The Group II 150N cut was assessed higher by $10/t at $570/t-$590/t ex-tank Singapore, and the 500N moved up by $30/t at $730/t-$760/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was adjusted up by $10/t to $440/t-$460/t; the SN500 moved up by $20/t to $590/t-$610/t FOB. Bright stock was also up by $10/t at $930/t-$960/t FOB.

In the Group II category, the 150N cut was assessed up by $10/t at $540/t-$560/t FOB Asia, while the 500N/600N edged up $20/t to $700/t-$730/t FOB Asia.

In the Group III tier, the 4 centiStoke and 6 cSt oils were assessed unchanged at $860/t-$890/t FOB Asia, and the 8 cSt grade at $610/t-$630/t FOB Asia.

The slowdown in China’s growth rate has had a negative global impact over the last couple of years, but some analysts believe China’s situation might be improving this year.

Alastair Chan, an associate economist at Moody’s Analytics, explained during a presentation at the 10th ICIS Base Oils Conference in Singapore last week that the first signs of a rebound in China’s business cycle have been noted in the first months of 2016.

Chan said that the housing market seemed to be improving, with more housing starts and new residential property prices going up in China’s main cities compared to a month ago.

There has also been an increase in electricity consumption and rail freight since Q4 2015, reflecting an increase in industrial production. This could mean good news for the finished lubricants segments that serve the industrial sector, market insiders commented.

Upstream, crude oil prices continued to move up. West Texas Intermediate benchmark futures flirted with the $50 per barrel mark for the first time since Octoberas a steady decrease in production in the U.S. and a corresponding reduction in inventories fueled a rebound. Concerns over problems affecting oil production in Canada and Nigeria in recent weeks boosted the uptrend.

However, analysts warned that higher crude oil prices would likely encourage U.S. producers to restore curbed production, contributing once again to a global oversupply of crude.

ICE Brent Singapore futures closed at $49.99 per barrel in afternoon sessions on May 26, compared to $48.67 per bbl on May 16.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LubesnGreases Publications shall not be liable for commercial decisions based on the contents of this report.